EU-Israel Trade Review & Irish Legislation
Last week, The European Union has formally agreed to review its trade agreement with Israel under the EU-Israel Association Agreement, citing mounting concerns over potential human rights violations in Gaza. Backed by 17 of the 27 member states, this move marks the most unified EU action to date in response to Israel’s military campaign in Rafah. The agreement, which grants Israel preferential trade access to the EU market—its largest trading partner—requires adherence to democratic principles and respect for human rights, both of which are now under scrutiny. The review could lead to the suspension or alteration of key trade privileges.
Simultaneously, Ireland is moving forward with the Occupied Territories Bill, legislation that would criminalize the import and sale of goods and services originating from Israeli settlements in the West Bank, East Jerusalem, and the Golan Heights—territories considered illegal under international law. While direct trade between Ireland and these settlements is small (just €685,000 over four years), the symbolic impact is profound. The Irish government’s backing, combined with growing public support, could trigger similar actions across Europe.
These twin developments underscore a potential turning point in EU-Israel relations, with implications ranging from diplomatic fallout and trade restrictions to legal battles and shifts in corporate risk assessments.
Base Case – Diplomatic Tension Without Full Trade Suspension (60%)
The EU concludes the review with warnings but no trade penalties. Ireland passes its bill, but implementation is delayed by EU legal challenges. Israel downgrades ties with some EU states but maintains trade and research ties. Tensions persist, but decoupling is avoided.
This is the most likely path due to persistent EU divisions and legal constraints. While 17 member states back a review, unanimity is needed for suspension, which countries like Germany and Hungary are unlikely to support. The EU will likely issue a strong condemnation but maintain core trade privileges to preserve strategic ties.
Upside Case – Coordinated EU Pressure Spurs Israeli Concessions (15%)
The EU signals trade suspension, prompting Israel to ease its Rafah offensive and reengage diplomatically. Ireland’s law sets a precedent, with similar bills in Belgium or Spain. Israel remains in EU programs under strict human rights monitoring. Corporate and investor sentiment improves as risks stabilize.
This scenario assumes rare EU unity and a strategic Israeli recalibration. It’s less likely because Israel’s leadership shows little inclination to change course under external pressure, and the EU rarely acts cohesively on foreign policy.
Downside Case – Trade Breakdown and Strategic Realignment (25%)
The EU suspends trade privileges. Israel retaliates diplomatically and exits joint programs. Ireland enforces its law, and other states follow. Trade with Israel drops sharply by 2026, especially in tech and defense. ESG funds divest, and EU-Israel ties shift into long-term strategic decoupling.
This scenario hinges on escalation, which is plausible given rising political pressure in the EU and Israel’s strong nationalist stance. If more Rafah casualties occur or settlements expand, the EU may face moral and political compulsion to act decisively.
